The Week Ahead: Choppy Waters Ahead

Well, that's it. Summer is over, and it's time to not only head back to school, but to get back to work. As we kick off the third month in the current quarter, we're looking at a 1.7% rise in the S&P 500 for the first two months of the quarter. That gain has brought the index's year-to-date return to 14.5% -- well off the highs seen in early August. For this, we can thank renewed discussion about September stimulus tapering by the Federal Reserve; possible U.S.-led military action on Syria; and a warning from Treasury Secretary Jack Lew that the U.S. will hit its debt ceiling limit sooner than expected.

In the coming week and month, we're in for a number of events that could make for choppy investing waters near-term. In the next week -- which, as a reminder, is a shortened one due to the Labor Day holiday -- we'll be drinking from the firehouse in terms of economic data. That information flow will focus heavily on the manufacturing economy, with reports due on several geographic areas, including China, the eurozone, the U.S. and Latin America. Domestic data will be particularly closely watched this week, given the "will-they, won't they" Fed-tapering question that market watchers are volleying about.

One of the more closely watched data streams to hit later this week is the August employment report from the Labor Department. We're starting to feel the effects of sequestration as related furloughs are taking effect -- but what has me more concerned are some recent data from Gallup.

Specifically, for the week ending Aug. 25, Gallup is reporting a meaningful jump in its weekly unemployment metrics. For starters, the Labor Department pegged the July unemployment rate at 7.4%, compared with Gallup's 7.8% reading for the month. Over the last nine weeks, Gallup's weekly measurement of the unemployed and the underemployed (Excel file) has steadily climbed from the mid-July lows of 7.6% and 17%, respectively. Most recently, for the week of Aug. 19 to Aug. 25, those numbers are at 8.8% and 17.7%. As those two metrics have climbed, Gallup's payroll-to-population figure has dropped to 43.6% from 45% over this same period.

If the August jobs report shows a similar jump in the unemployment rate, the stock market will likely rally -- because it would view this as a sign that the Fed is unlikely to taper its stimulative efforts in the near term. Should that happen, one confirming sign to watch for would be a pullback in interest rates on the 10-year U.S. Treasury bond.